2024-02-02 13:34:20 ET
Summary
- Cantaloupe is a market leader in the growing self-service retail industry and has potential for long-term growth in new verticals and regions.
- Analysts are cautious about investing in Cantaloupe due to its high P/E ratio.
- Cantaloupe's transformation to a subscription model should drastically increase margins.
- Even if the P/E multiple contracts, Cantaloupe's earnings growth could power outsized investor returns over the next three years.
Seeking Alpha analysts have been cautious about investing in Cantaloupe ( CTLP ) because of its high P/E ratio. And I was initially skeptical when, after recommending Asbury Automotive ( ABG ) to readers in November in part because David Abrams owns such a large stake, one of my readers recommended I look into Cantaloupe, another one of Abrams' holdings. But after looking closely at recent operating performance, I have found that analyst estimates are unreasonably low. If Cantaloupe continues growing revenue in new verticals and regions and shifting its customers to a subscription model - as currently planned - EPS should increase several times over in the next three years. Even if the P/E falls by half, investors could still end up doing very well. With a long runway for growth beyond that, Cantaloupe has the potential to become a long-term compounder.
Sentiment
The Seeking Alpha community has rated CTLP a solid hold. While the quant ratings for growth and profitability have been improving, CTLP gets bad marks for valuation, momentum, and revisions....
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My Top February Stock Pick: Cantaloupe Poised For Margin Expansion